Republicans go along with Democrats' crony capitalism

Mark Newgent

Over the years Red Maryland has chronicled how the Democratic majority in Annapolis has been in the business of picking winner and losers in Maryland’s economy.

Whether it is bestowing lavish subsidies for film production, mandating ratepayers foot the bill for offshore wind farms, or sole bidding the state’s speed camera program to a politically connected vendor, Maryland Democrats have mastered the art of rewarding their friends.

The ostensible purpose of the Republican minority is to oppose this. Not that they have the numbers to stop it, but at a minimum we should expect Republicans to stand athwart crony capitalism yelling stop.

However, there are some votes that are real head scratchers.

Case in point HB 583. The bill modifies the Equity Participation Investment Program, which is a part of the Maryland Small Business Development Financing Authority. The MSBDFA is a quasi-public organization that administers state funds loaned to minority owned businesses that cannot find private financing.

According to HB 583’s policy note, it expands the types of businesses eligible for state financing to include small businesses.

On its face, the bill sounds like something a “business friendly” Republican should support. However, when you dig into the history of MSBDFA, and the politically connected private firm that administers it, you’ll find the worst kind of crony capitalism.

The MSBDFA is administered by Meridian Management Group, which is run by Stanley Tucker. Meridian enjoys a unique status among state contractors, in that its contract to administer MSBDFA is enshrined in statute. In 1994 the General Assembly authorized MSBDFA to organize itself into a private entity, and Tucker, who was executive director of the agency, formed Meridian to administer the firm.

Like Tucker, Meridian’s founding partners are all former state employees.

They are also major donors to Maryland Democrats. According to the state campaign finance website, Tucker, Meridian executives and subsidiaries made more than 700 donations totaling $137,000 to state and local politicians since 2005. All but $1,400 of that amount went to Democrats.

Stanley W. Tucker, president of MSBDFA Management Group Inc., confirmed this week that state auditors have questioned the propriety of giving political candidates any of the nearly $1 million a year the company receives from the state.

Although it is not illegal for Tucker's private company to make political contributions, state officials said they are concerned about the perception that public money is being funneled into campaign coffers. They said they want to halt the practice.

Tucker said his company made about $21,000 in campaign contributions to various state and local candidates from 1995 to 1998.

Some of the money went to lawmakers who sponsored legislation last year that benefited the company by extending its contract, campaign finance records show.

An in-depth 2006 expose by the City Paper found that Meridian loses $750,000 in taxpayer funds each year and that at the time the company blew threw $29 million in additional taxpayer funds through a unique venture fund created by changes to state and federal law, engineered by Tucker.

The City Paper reported:

But Tucker had his eye on a federal Small Business Administration program that funded venture capital firms. Under the law, the government would invest up to $4 for every $1 in private money venture capitalists had invested. Tucker wanted to leverage state money to get quadruple that amount of federal money. But state money wasn’t considered “private capital,” so in 1992, he says, he asked then-Congressman Kweisi Mfume — who served on the House Banking and Financial Services Committee and the Small Business Committee — to change the federal law.

“We approached Kweisi,” Tucker says. “We needed the definition of private capital changed so that we can use public capital to leverage private capital.”

Mfume, now a candidate for U.S. Senate, says he can’t recall the specifics of the legislation he helped pass (he is not listed as a co-sponsor of the bill, the Small Business Equity Enhancement Act of 1992). “I worked with a number of civic groups,” he says. “One of the needs was this issue of undercapitalization.”

Little noticed at the time, the Small Business Equity Enhancement Act of 1992 allowed state funds to count as “private” for the federal SBA match. But the law would not permit Tucker to do so as a state employee. Tucker quit his state job; in 1994 Maryland legislators privatized MSBDFA and authorized the state Department of Business and Economic Development to invest $10 million of taxpayer funds in Tucker’s new venture capital fund.

The City Paper article noted that at the time Meridian was licensed, the firm’s managers had no documented experience as private venture capitalists.

Meridian has also has a knack for getting what they want from the legislature. Including, HB 583, the General Assembly has unanimously approved all changes to the MSBDFA program it has asked for over the years, including extensions of its contract.

In 2005, the General Assembly passed, HB 674, which raised the amount of money MSBDFA could loan, allowed the entity to fund other types of businesses, and allowed DEBD to renew Meridian’s contract including two additional five-year terms. Buried in the bill’s fiscal policy note was information detailing that Meridian’s MMG Venture LLP had turned tens of millions in state and federal money “into a portfolio of assets and investments worth $600,000.” The bill passed both houses without a single no vote.

In 2007, the General Assembly also unanimously passed HB 989, which once again raised the amount MSBDFA could loan, and expanded the type of contracts for which MSBDFA can issue or guarantee a bid, payment or performance bond.

Given their numbers, we don’t expect the tiny Republican minority in Annapolis to stop every bad bill that comes down the pike. However, we should at least expect them to not bestow a bipartisan imprimatur on one of the worst excesses of one-party rule.

--Mark Newgent has contributed commentary to The Washington Examiner and National Review Online, and he is an frequent guest on WBAL Radio. His posts appear here regularly via Red Maryland, which has strived to be the premier blog and radio network of conservative and Republican politics and ideas in the free state since 2007.